20k car, private loan or pcp?

BigPun

Hi all,

I'm in the market for a car and have never used PCP so it's all a bit confusing to me.

The car itself is around 20k. I was initially thinking of paying 10k in cash from my own pocket and then the other 10k, I managed to get a fairly decent 5.4% over 36 months via my bank so I could pay the full cash price to the dealer and just pay off the loan with my bank (this would be around 299 a month so would only cost around 765 for the entire 10k loan over the period of 3 years)

Alternatively, the dealer said an option is to pay a deposit of say 5k, then have payments of around 200 a month but at the end of the 3 years I would need to pay an "option to buy fee" otherwise I have to give it back. Over the 3 years this would cost me 12,200

I really don't understand why I would do the PCP route. After 3 years, from what I've seen my car would be worth around 11k still so if I just paid for the car it would have cost me 9k for 3 years if I were to sell the car at the end.

Perhaps I'm missing something, and of course there is a significant chance that the depreciation is more than I expect it to be?

londonTiger

yes you're missing something. cars are fast depreciating assets. If a sizable amount of funding is a loan then you'll get into negative equity pretty damn quick.

spend 20k on partially financed car if you just want to have fun and dont care about the loss and expense of interest payments. dont try to do the numbers and look at the equity because they will never be a wise investment.

btw the finance guy is trying to squeeze money out of you. he wants you to pay more interest, dont know about what this option to buy car at year 3 is. almost certainly will get hit with admin fees and bleed more money in the process

F1F93

The idea is that you dont give the car back at the end, you either buy it or part ex it.

5000 deposit and 3 years of 200 a month would mean a final payment of around £8000-8500, im guessing? But the car is worth £11000 according to you. Either sell it privately or part ex it and use the three grand equity as a deposit on a new one, so your monthly payments will stay fairly similar with very little extra deposit on a similar car.

PCP works very well for people who like to have a new car every few years.

And dont forget - its only a five grand deposit, so you've still got 5k in the bank gaining interest .

Blancster1

BigPun wrote: »

Hi all,

I'm in the market for a car and have never used PCP so it's all a bit confusing to me.

The car itself is around 20k. I was initially thinking of paying 10k in cash from my own pocket and then the other 10k, I managed to get a fairly decent 5.4% over 36 months via my bank so I could pay the full cash price to the dealer and just pay off the loan with my bank (this would be around 299 a month so would only cost around 765 for the entire 10k loan over the period of 3 years)

Alternatively, the dealer said an option is to pay a deposit of say 5k, then have payments of around 200 a month but at the end of the 3 years I would need to pay an "option to buy fee" otherwise I have to give it back. Over the 3 years this would cost me 12,200

I really don't understand why I would do the PCP route. After 3 years, from what I've seen my car would be worth around 11k still so if I just paid for the car it would have cost me 9k for 3 years if I were to sell the car at the end.

Perhaps I'm missing something, and of course there is a significant chance that the depreciation is more than I expect it to be?

Your maths don't seem to add up?

It would be £9k plus the£765 interest charge on your loan =£9765?

You don't say what the final payment is on the PCP deal, if it is less than £11k then you would also have that equity from the PCP deal?

neilmcl

OP, as mentioned you need to make the maths work. You need to work out exactly what you'll end up paying for the total 3 year period including any interest for both methods. My suspicion is the bank loan may be cheaper but there may be other cheaper loans out there.

Also, I wouldn't consider a car finance deal unless I was getting a reasonable dealer contribution to the asking price, is the dealer offering you anything to take their finance deal?

Hintza

As Neil says make the maths work, you have a loan offer in your back pocket so now go and check the online brokers.

You might also want to consider using a higher portion of your savings depending on bank rates etc to make that work though you really need to be strong and pay a good amount back in to your savings account each month.

BigPun

Thanks for all of the replies and input! As suggested, I will go to the dealership and tell them I have the loan offer from the bank and then compare what they offer on PCP against the figures of the loan / deposit I put in with the intention of keeping the car after 3 years.

Whichever figure turns up with the lowest price, I'll take

Hintza

BigPun wrote: »

Whichever figure turns up with the lowest price, I'll take

Did you miss the part where I suggested checking the price elsewhere before buying?